We have a major problem in the United States that we aren't discussing. And I'm not talking about imminent financial doom, an aging population, or rising healthcare costs. I'm talking about the quality of our internet access. Broadband connection speeds here are embarrassingly slow compared to our peers. But you probably go on Netflix (NASDAQ:NFLX) and watch House of Cards for 9 hours in a row without a hitch and think your internet connection is just fine. Then again, not so long ago we thought a day and a half ride on the TransContinental Railroad from New York to Chicago was fast too.
Speed is time and time is money. Faster internet speeds not only add flexibility to our schedules, but also increase our capabilities to tackle new challenges. 30 or 40 years ago if you told someone that we would be watching original content wirelessly streamed to our homes in real time on a tiny tablet, you might get some funny looks. Even in the 90s when we were dialing-up AOL to get directions from MapQuest, live-streaming video or Skype chats seemed impossible. If we made another advancement similar to the one between dial up and broadband, imagine what might be within the realm of possibility.
One area that immediately jumps to mind is the cloud and distributed computing space. Recently IBM (NYSE:IBM) has committed over $1billion to data centers to increase its cloud computing capabilities and cloud oriented services are expected to be a major sector of growth over the next decade. Having faster internet speeds would reduce latency and increase the effectiveness of running physically separated distributed networks in parallelization. As things stand now, our internet speed inhibits the ability for geographically separated computers to work together in simultaneous collaborative tasks, but faster connections may help solve that problem.
Internet speed is absolutely essential to future development, but the first question we need to ask ourselves is this: if we consider the United States to be one of the most technologically advanced nations in the world, why are our broadband speeds so slow? According to Ookla.com, which does broadband testing and tracks web diagnostics, we average 21.12 megabits per second (Mbps) and are ranked 32nd in the world by average broadband speed. Comparatively the World's leader, Hong Kong, averages 72.03 Mbps making the internet 3.4x faster there. And there are certainly some practical reasons for the difference.
For one, countries with the best internet speeds tend to be small, reducing the the cost of building and maintaining a vast infrastructure covering large distances with expensive high speed cables. Secondly, other nations have a robust second or third mover advantage. The U.S. was one of the first countries to get on the web and establish a broadband network. This came with many advantages and American companies were among the first to reap the benefits of the virgin internet and entrench themselves as go-to web businesses. But being first to the party also came with a price. Our private companies were the ones who paid the lion's share of research and development costs, while the rest of the world got to watch how we built our national network and learned from our inefficiencies.
Thursday's announcement that Comcast (NASDAQ:CMCSA) would acquire Time Warner Cable (TWC) in an all stock deal worth $45 billion may change the trajectory of our broadband destiny. The deal will give Comcast control of approximately ⅓ of the nation's broadband and cable TV market. While the deal has not been approved by regulators yet, customers have already voiced concern that prices will rise and internet speeds will slow. Comcast and TWC are both known for having horrible customer service and their subscribers tend to not be particularly fond of them. This consolidation to create a broadband monopoly could be exactly the catalyst we need to enter a new age of internet speeds.
Comcast is going to a have a huge piece of the internet pie and everyone will have their eyes on it. The first alternative that comes to mind is Google (NASDAQ:GOOG) Fiber. The internet mega giant, Google, is not a big player in the ISP market yet, but they have been playing around with their own fiber optic network in Provo, UT, Kansas City, and are coming to Austin, TX next. And the results are incredible, Google Fiber touts 1000Mbps. That's about 50x faster than the average internet connection speed in the United States today. Google has proven that they are a company of innovation and risk taking, they might just be the right company to push us into a new era of the internet.
If you have been paying attention to the search engine, instant messaging, office software, email, online video, or smartphone operating system industry lately, you may already know that it isn't wise to give Google any incentive to compete with you. Hopefully Comcast is paying attention and one way or another we will reach the next era of internet speeds soon.
Disclosure: No positions